An increasing hash rate means Bitcoin mining is still profitable enough for many players to stay put, defying speculation that prices have fallen past break-even points.
LONDON: With Bitcoin declining this year, you might expect mining activity to follow. That hasn’t happened.
The combination of falling prices and a rising hash rate — which measures computing power — shows how complex the economics of cryptocurrency mining are. An increasing hash rate means Bitcoin mining is still profitable enough for many players to stay put, defying speculation that prices have fallen past break-even points.
That may be a reflection of how sophisticated Bitcoin mining has become after last year’s 1,400% price rally. While that drew a fair share of amateurs mining from their basements, the lucrative rewards also drove major miners to up their game by snatching up increasingly speedy chips and setting up shop in places with cheap power. That’s helped them squeeze out smaller players as prices fall to the US$6,000 level.
“There are still major expansions happening, especially from more efficient miners,” Marco Streng, chief executive officer of Genesis Mining, said by phone from London. “The expansion is so big that it compensated for the drop-out of not-so-efficient miners.”
New Bitcoins are created when computers compete to process transactions by solving complex puzzles in exchange for tokens. As mining power increases, the calculations needed to generate new digital coins become harder — a mechanism designed to limit supply and dominance in the hands of few miners.
The race to get ahead with top-notch technology has intensified so much that miners became key customers for semiconductor giants such as Nvidia Corp. and Taiwan Semiconductor Manufacturing Co. And because of such advantages, the business became increasingly institutionalized and concentrated in the hands of companies like Bitmain or Bitfury.